• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

Congratulations to Jamil from Pakistan and Jeeva from Malaysia - Global Prize winners!
see all ACCA December 2022 Genius Hunt Competition winners >>

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

Provision

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Provision

  • This topic has 2 replies, 3 voices, and was last updated 1 year ago by P2-D2.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • October 31, 2021 at 8:14 am #639535
    catherineykf
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    My question quoted from BPP Practice & Revision Kit as below:-
    In five years’ time Rainbird Co will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 Jan 20X1 was $2.63 million Rainbird Co has a cost of capital of 8%.

    The kit asks me “What is the amount of the provision that should be carried forward at 31 Dec 20X1 for the dismantling of the factory?

    I would like to know why the calculation is $2,630,000 * 108% = $2,840,000 instead of $2,630,000 *1/1.08 = $2,435,185?

    November 7, 2021 at 8:49 am #640114
    nkasiobi
    Member
    • Topics: 1
    • Replies: 7
    • ☆

    Hello Catherine,
    So the question shows that the provision was made 5years prior to the dismantling happening thus the figure 2.63m given at Jan 1 20×1 is a discounted figure from the main expense due in 5 years time.

    Every PV is usually lower than the main value and as the year passes, that value increases (compound interest) until it matches the main value in the estimated year thus the 2,630,000 should now be multiplied by the cost of capital to get the interest accrued on the previous PV which added together will give the new value at Dec 31, 20X1 (it’s compounded ie compound interest) which is 1 year later. So 2,630,000 x1.08 = 2,840,400.

    Remember,the present value of the final cost is supposed to increase as the year inches towards the estimated number of years.

    November 7, 2021 at 9:24 am #640138
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6443
    • ☆☆☆☆☆

    Does this answer your question, Catherine? If not then let me know.

    Thanks

  • Author
    Posts
Viewing 3 posts - 1 through 3 (of 3 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • John Moffat on Introduction to Financial Accounting – ACCA Financial Accounting (FA) lectures
  • John Moffat on Linear Programming – Maximum contribution – ACCA Performance Management (PM)
  • d.kabulova on Introduction to Financial Accounting – ACCA Financial Accounting (FA) lectures
  • alin.sivi on Linear Programming – Maximum contribution – ACCA Performance Management (PM)
  • John Moffat on Time Series Analysis – ACCA Management Accounting (MA)

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy